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How does one reconcile the stock market standing at record peaks during a sluggish economic recovery that has left so many people struggling with lagging incomes and poor job prospects?

When the human brain is confronted with two, contradictory conditions, we experience what psychologists call cognitive dissonance. Since we tend to like to have our beliefs and experiences to be in harmony, we will change one of those attitudes to restore balance and eliminate the cognitive dissonance.

It would appear such psychological forces were at work during the meeting of the Federal Open Market Committee that concluded Wednesday at its headquarters on Constitution Ave. in the nation's capital. With the Standard & Poor's 500 setting another high on the first day of the confab Tuesday, the panel took little note of the palpable softening in an array of economic data.

From that, a significant swath of market watchers inferred the Federal Reserve could commence tapering its $85 billion-a-month bond purchases at the December FOMC meeting. The notion that the monetary stimulus could begin to be dialed back this year helped reverse earlier gains in both the stock and Treasury markets and boost the beleaguered dollar Wednesday afternoon.

The FOMC's latest statement also eliminated the previous reference to the "tightening of financial conditions."

In addition to higher stock indices and distinctly bubbly action in high-flying momentum stocks, a significant portion in the run-up in long-term interest rates has been reversed since September meeting. At that time, of course, the Fed confounded the consensus by opting not to announce any tapering of its quantitative easing.

What's not acknowledged is the slowing in employment gains. This isn't just a reflection of the month-to-month noise in the closely watched data from the Bureau of Labor Statistics. Shadow Government Statistics (www.shadowstats.com) shows a clear, steady downtrend in the three-month moving average of private payroll growth, to under 150,000 by September from over 200,000 early in the year.

Moreover, ADP's estimate of private payrolls for October showed a gain of just 130,000, short of the 150,000 that Street economists were forecasting. In addition, September's increase was revised down to 145,000 from the original estimate of 166,000.

The FOMC had those numbers Wednesday morning, well before the 2 PM EDT release of its statement. But it did not acknowledge any of the slowing in private payrolls.

Was this a coping mechanism to deal with the cognitive dissonance caused by weak employment gains and a 20% rise in the S&P 500 this year? Not being in a position to put Ben Bernanke and the rest of the committee on the couch, I can't answer.

While the central bank did acknowledge a slowing in housing, a reflection of the earlier uptick in interest rates, it also noted inflation also is running below the Fed's target. September's rise in the overall consumer price index of 0.2% and the 0.1% uptick in the core CPI (excluding food and energy costs) brought the respective year-on-year increases to 1.2% and 1.7%. The Fed aims for a 2% annual rise in another measure, the core personal consumption deflator, which mostly tracks the CPI.

The Fed's notion is that a 2% inflation rate will stave off an unwanted deflation. And some economists hold a little bit of inflation helps growth more than price stability. In any case, the Fed's seemingly modest inflation target means the dollar loses half of its purchasing power in 36 years. Millenials, take note.

Be that as it may, the markets inferred from the FOMC statement that the beginning of tapering of the Fed's bond buying is a possibility at the Dec. 17-18 get-together. Previously, the March 18-19 meeting had been thought to be the earliest start of tapering, which would be the first to be presided over by Chairman Ben Bernanke's successor.

President Obama has nominated Fed Vice Chairwoman Janet Yellen, but three GOP Senators, Rand Paul of Kentucky, John McCain of Arizona and Lindsey Graham of South Carolina, have threatened to hold up a vote on her confirmation. Paul wants the Senate to vote on his bill to audit the Fed, while McCain and Graham want to press their quest for information about the attack on the U.S. embassy in Benghazi, Libya, last year.

Such DC dysfunction resulted in the recent shutdown of the federal government, which will shave a few tenths of a percent off the current quarter's annualized gross domestic product growth rate. And we could go through a rerun early next year, which could dampen consumer and business confidence further.

Despite the "fiscal retrenchment" this year, the FOMC pointed to "the improvement in economic activity and labor market conditions since it began its asset purchase program." That it doesn't acknowledge the apparent recent sluggishness has caused some to infer that it is on track for a December taper.

The conventional wisdom also had been for the taper to commence in September. Based on past behavior, it seems unlikely the Fed will change the course soon. And, as seems likely, when Yellen takes over, tapering seems even less likely in the absence of real improvement in the labor market -- not just a falling jobless rate from a low labor-force participation rate.

So the cognitive dissonance between a hot stock market and a tepid real economy will likely persist. Of course, the condition could be readily resolved by the Fed's admission that quantitative easing mainly pumps up asset prices while the real economy is restrained by tax and regulatory matters. That would be what therapists call a breakthrough.